Three local lenders have acquired other financial institutions in the past six months. Industry sources say more deals are in the works at the community bank level, involving lenders with between $250 million and $1 billion in assets. And out-of-state banks likely will continue to acquire their way into the Nashville market in an attempt to grab a piece of a sizzling economy.

Analysts, lawyers and bankers themselves have been predicting this consolidation for years. And when the dust settles, Middle Tennessee — traditionally a bastion of home-grown banks — will have fewer, and larger, locally based lenders.

“We think there will be a good deal of consolidation in the banking world, and we intend to be one of those consolidators going forward,” said Ron DeBerry, president and CEO of Commerce Union Bank, which recently merged with Reliant Bank. “We wanted to be on the early edge of this round of consolidation and be a player when this consolidation continues.”

While one deal the size of the Reliant-Commerce Union merger — which created a $655 million institution — won’t dramatically affect lending in Middle Tennessee, a flurry of them will. And with small banks under pressure from added regulatory costs in a competitive market for loans, having fewer and larger banks won’t be a bad thing for borrowers. Larger lenders can make bigger loans, effectively broadening their client base and enabling them to compete with the regionals. Consolidation also creates scale, allowing lenders to offer more products — say, wealth management services or large real estate loans — than they could separately.

The last big wave of consolidation in Middle Tennessee, from the late 1980s to early 2000s, brought regional players such as Regions Bank, SunTrust and Bank of America to the Nashville market. As community banks are squeezed by tighter interest rate margins, sluggish loan growth and higher compliance costs, experts say local lenders will continue to need and pursue deals with each other — to cut costs, stay competitive or expand their footprint to create scale.

The catalyst

Until six months ago, the deal scene in Middle Tennessee banks had been quiet in the aftermath of the recession. CapStar Bank made the lone acquisition in 2012, when it bought Hendersonville-based American Security Bank & Trust. In November, Franklin Synergy Bank announced it would acquire Murfreesboro-based MidSouth bank in a $45 million deal that is still winding its way through regulatory approval.

Bank analyst Jeff Davis of Mercer Capital in Nashville said the Franklin-MidSouth deal could have been “a catalyst” for the Reliant and Commerce Union merger, which was announced in April.

“There are only so many bankers out there,” Davis said. “If guys start picking out their girls, then there are fewer banks out there to partner with.” Of course, he added, the more possible partners, the better the deal options.

Consolidation is likely to continue among smaller community banks. While there are more than 30 Middle Tennessee-based lenders ranging in size from Pinnacle Bank, with more than $5 billion in assets, to Heritage Bank & Trust, with around $100 million, more than 20 of the banks based in Nashville have less than $500 million in assets.

“Tennessee will continue to see transactions between now and the end of the year,” said Colin Barrett, president of the Tennessee Bankers Association. “It’s a matter of a lot of different things.”

Growth will not only allow them to compete for bigger loans, it will help them cover the cost of complying with federal and state regulations.

Who’s next?

Several familiar names are being batted around on the buy side. Avenue Bank, led by chairman and CEO Ron Samuels, is one because of strong growth and the fact that it has not yet made an acquisition.

Though Samuels has downplayed the possibility, the bank has enough capital to position it for an acquisition, sources say.

CapStar and Pinnacle are also primed to buy. CapStar CEO Claire Tucker has pulled the trigger on two deals in the past two years, and has told the Nashville Business Journal the bank is keeping its eye out for more.

FirstBank President and CEO Chris Holmes has said his bank is on the hunt for the right acquisition. And Commerce Union’s DeBerry and DeVan Ard, president and CEO of Reliant Bank, both are bullish about making future buys.

And while scale positions Reliant and Commerce Union to continue snapping up smaller competitors, Davis said, it also makes the bank an attractive acquisition target itself.

“Assuming the execution goes okay,” Davis said, “the combined company would be more attractive to a larger bank that wants to expand into Nashville.”

Another potential target, sources said, is Clarksville’s F&M Bank. Sumner Bank & Trust, once the target of Hopkinsville, Ky.-based HopFed, still looks to be in play as well, after the HopFed deal fell through last summer.

Out-of-market interest

Expanding into Nashville is in fashion these days.

Last week, Arkansas-based Simmons First National Bank bought Community First Bank, the parent company of Union City, Tenn.-based First State Bank. Chairman and CEO George Makris said the acquisition, the company’s third in the past eight months, gives the bank an entrance to a “red hot” Nashville market. Makris said the bank will continue to look for future acquisition targets to build on the presence established by First State in Middle Tennessee.

“The Nashville [metro region] is one of the fastest growing in the country. We see a lot of opportunities for growth,” Makris said. “We really intend to keep their momentum going.”

Richard Herrington, president and CEO of Franklin Synergy Bank, said bank mergers across the Southeast have “gotten really hot,” and he anticipates that to play out further in Middle Tennessee.

The health of the Nashville banking community “did not suffer nearly as much as the banks in Georgia, Florida and the Carolinas,” he said. That has taken “a little bit of pressure off the merger wave, but it’s going to continue to happen.”

Creating scale

Reliant’s Ard said scale was a contributing factor in the bank’s merger with Commerce Union.

“It was a case where we felt one plus one equals three,” Ard said. And like DeBerry, Ard said the combined institution isn’t done yet.

“We’ll continue to look for good opportunities to grow the bank,” he said. “That could be organically based on the platforms the two banks have, or it could be future acquisition opportunities that are out there.”

Spreading compliance costs over a larger base will force many small banks to seek scale, Herrington said.

“The reality is that new regulation increases the cost of doing business,” he said. “As banks begin to recognize the challenges created by being small and see the advantages of being larger, it’s going to trigger more acquisitions. … It’s going to become increasingly difficult for smaller banks to survive.”

DeBerry at Commerce Union said rising costs on regulatory compliance played a role in the merger with Reliant, citing especially the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, which went into effect in 2010.

“Compliance costs and joint operating costs following Dodd Frank have increased the cost of doing business,” DeBerry said. “The scale will help us cover that.”